Any luck in receiving Gross Rent from PM?

yeah I agree, Pms arent in the business of reallocating funds etc.

hey im actually defending a pm

PS im not a tax expert,

but would say $500 income with $25 management fees be IDENTICAL taxwise then $475 income with no fees???

I cant see how they would be different

 

They are very different. One is just income, the other is income and expenses.
But this is not what is going on here.

 

im not a tax expert, but pls explain how they are different,

your net position is the same, one has the difference in income as an expense

and its not as if you can double claim your expenses?? or is it GST that you are consdering


and I think the only reason why a normal common person would want that arragenemtn is becuase its easier to keep track of in his mind,
or
hes trying to show higher income in one account or lower in the other

or

the funds are kept int he offset for a bit longer thus interest is reduced

 

I did above. You can borrow to pay expenses.

 

agree with Terry that you can use it to debt recycle, although I'm not sure his calculation before was quite correct.

If your agent fees are $4k per year and you borrow to pay them, then you can claim the interest on this $4k. At 5% that would be an extra $200 interest per year which at a 37% tax rate would save you $74 in tax, plus the interest on your non deductible loan because you have the extra $4000 in cash.

It seems like a lot of work for not a lot of gain, and know what ur clients are like with pying, if I was a PM I would only do it if the fees were paid up front.

 

Of course! My figures were way too high! Thanks = adjusted them now.

You are right it is a lot of effort for little reward.

 

Agree with both sentences here.

Other concern is what happens if tenant stops paying or vanishes. Is there recourse on those prepaid fees?

 

Would they be paid into your trust account? If so they would belong to the landlord until they fall due.

If paid up front it would probably depend on your agreement.

 

Trust account yes, but its commission so could draw down on it monthly to keep some there to refund to owner if tenant goes bad.

No thanks

 

If you want to do it, find a PM with a flat yearly fee & pay upfront.

 

Yes - wanted to try and use as part of debt recycling. Mainly because I have a LOC with funds available that will not be used in the next couple of years. I was also looking at all the expenses over the last year and PM fees were about 30% of the costs (excluding interest) - I'm very happy with them and worth the money - just looking to maximise the value...

Terrys Tax Tips made good sense about borrowing for paying expenses, so why not this expense?

I've got about $12k pa total in PM fees. So if that was borrowed at 5% thats $600 interest with 37% tax back - thats $200 in your pocket. Plus $600 savings against other debt so $800 per year better off - and that compounds every year. Y1 $800, Y2 $1,600, Y3 $2,400 etc...

Also get $12k per year cash in offset for other uses.

But i agree its more complicated for the PM and probably not 'normal business'. I thought if they are debiting a ledger on their books where my rent is held, they could just as easily debit a LOC if they had the authority.

 

Thanks DT - totally see your side of the coin. A lot of problems on the PM side.

Currently my PM holds the rent for 3 or 4 weeks anyways before I get it.

How about you debit the LOC at the start of the month and remit the rent at the end of the month?
or
Receive rent -> expenses paid as usual -> debit LOC at end of month including PM fees -> remit rent

Not worth it? I would move PM if this was offered...

 

Hopefully I'll be renting my new IP soon after it settles. I'll be looking for a PM that can do the above as I'm one of those on a 37% rate and extra bit of money would be handy.

 

This is equivalent of taking your wage from the till daily and then every three months paying your boss back the PATG tax...disaster

 

This doesn't benefit you in anyway unless you are utilising a the strategy terry mentioned. Funds are better off in your offset..,

 

I don't see any benefit in taking gross rent then paying PM fees?

If you are trying to make your offset work for you try getting rent paid to you weekly/fortnightly.

In relation to PM, all of our rates notices, water rates, insurance notices goto them and they get deducted from rent.
There is enough life admin to attend to, so let them do some of it, plus you are already paying them, so they may as well pay the bills for you!!

 

I am sure many would. Good marketing strategy possibly

 

And for those wanting to know more about debt recycling see
Tax Tip 2: Debt Recycling https://propertychat.com.au/community/threads/tax-tip-2-debt-recycling.1472/

 

I'm honestly surprised how many people don't see the debt recycling benefit of capitalising one of the largest IP expenses. One of the cases where only looking at the bottom line will blind you from the potential of splitting up the components and treating them differently.

 

Would an additional premium attached (to cover the administrative hassle) be attractive to someone wanting to pay annually in advance?

From memory paying bank loan interest annually in advance costs more as well.